DWP to consult on overseas pension blockage

The Government plans to act to help thousands of expatriates who are struggling to access their final salary pensions eight months after the launch of the pension freedoms.

Money Marketing understands the Department for Work and Pensions is to launch a consultation to address concerns that people living abroad with UK pensions are having difficulty in transferring their defined benefit funds.

Since April 2015 all DB transfers over £30,000 must be overseen by a pension transfer specialist, meaning that advisers working overseas must link up with UK advisers holding the correct qualifications.

In December Money Marketing revealed how international advisers are failing to link up with UK advice firms.

More than half (56 per cent) of 289 international advisers surveyed by Old Mutual Wealth said they were facing challenges in establishing partnerships, with high fees and the reluctance of UK advisers the main stumbling blocks.

The FCA has also flagged the issue as one of the areas it has had most feedback on.

The DWP is expected to announce what action it will take in line with the FCA’s work on the Financial Advice Market Review.

A DWP spokeswoman says: “The Government will consider how best to take forward this issue following the FAMR review, which will help any exercise to better align with FAMR’s conclusions.”

“High fees” given as a reason for not working with a UK IFA? One has to question the quality of this survey. One can only assume that these advisers do not disclose their fees to their own clients- often being many multiples of what a UK IFA will charge.

Many offshore firms offer “free financial advice” and “free pension reviews”, as the sales process is very much as it was pre 1988 in the UK. No need to disclose commissions, in fact the client “does not have to pay anything” as the product provider pays the adviser.

Therefore, it is hard for these firms to then tell their prospects that the UK advisers will actually charge a fee for a sophisticated, regulated and insured transfer report that has to have the clients’ best interests at the centre of the advice ( TCF ).

There is concern that a UK IFA could be used as a “sign off ” process offshore and, while the critical yield is not the only factor for consideration, the ultimate funds and expensive wrappers may be markedly different from the assumptions used in the initial transfer analysis. Effectively making the FCA regulated advice redundant.